housing market

If you live in Frank’s district, this is the only reason you need to vote for Sean Bielat, his GOP opponent. I.e. Frank is about to remake Fannie Mae and Freddie Mac in his own image. That after the two institutions that he fought so hard to support with your tax dollars and attempted to keep Congressional oversight to a minimum, tanked and almost took the economy with them.

The Washington Post has a mostly sympathetic piece (poor Barney, he only wanted to use your money to help the poor put a roof over their heads) which, if you read carefully between the lines, at least hints at most of the story. And the rest of the story ends with us pumping $160 billion and counting into the two institutions after the government took them over.

Back when it all started, Frank identified cash cows in the two institutions which would allow him to fulfill his personal agenda:

Fannie and Freddie were in the business of buying and guaranteeing mortgage loans from private lenders, which in turn could take the money and make even more loans to prospective homebuyers or developers looking to build apartment buildings.

Democrats, led by one of Frank’s closest allies, Rep. Henry B. Gonzalez (D-Tex.), wanted to require the two companies to spend a specific percentage of their funds on affordable housing. Under the proposed legislation, the companies were to buy home loans made to lower- and middle-class people and loans going to fund development of affordable rental housing.

This represented a rich new vein of money.

But even as Democrats were looking to expand Fannie and Freddie’s mission, a small group of Republicans, led by Rep. Jim Leach of Iowa, urged the government to pay more attention to the dangers posed by the firms.

Let’s see – “rich vein of money” or oversight and caution? “Rich vein of money” of course. So Leach’s warning were pushed aside:

The companies had been growing ever larger. Yet compared with their rivals in the banking industry, they were putting aside relatively little capital to cover potential losses. Leach proposed a tough new regulator that would restrain Fannie and Freddie.

Nah. So onward we went, huge sums of money flowing out the door, very little oversight, with a political agenda driving the bus instead of financial sanity. That was in 1992. In 2003, the warnings were still coming and getting louder:

By late 2003, the firms had taken on more than $4 trillion in debt, rivaling that of the entire federal government. Yet Frank, who had by then become the top Democrat on the influential House Financial Services Committee, still wasn’t focused on the risks. He had his sights set on what else they could do to promote for affordable housing, particularly low-cost rental housing.

At a hearing called by Republicans, who controlled the committee, Frank made clear that he was reluctant to tighten oversight because it could limit the ability of Fannie and Freddie to help people get a roof over their heads.

The companies, he urged colleagues, "are two of the very important tools that we have" and had to do what "the market in and of itself will not do. "They were "not endangering the fiscal health of this country," he continued.

But, of course, they were and did endanger the fiscal health of the country. Denial was his only weapon and he used it constantly – because his personal political agenda was apparently worth the risk – at least to him. He even said once he wanted to “roll the dice” a little more, perfectly willing to risk the fiscal future of the country to push his political agenda.

And you all know the rest of the story.

Fannie and Freddie proceeded to load up on securities backed by risky mortgages, such as subprime loans and no-document loans. The firms asserted that they were aggressively fulfilling their affordable housing mission, and some risky mortgages were indeed going to borrowers who couldn’t otherwise afford a home.

But many of the loans were going to people who could have afforded traditional mortgages, and the companies were bulking up on the risky loans purely in pursuit of even larger profits.

When the housing market crashed, the unprecedented surge in mortgage defaults blew a hole in the firms’ finances.

The Democrats and Frank want to deny this part of the story or pretend it is an insignificant part of it or that what happened to Freddie and Fannie were a result of Wall Street’s shenanigans.

Not really. The prime buyer and bundler of the sub-prime mortgages were those two institutions. And, as the article notes, Freddie and Fannie believed they were “aggressively fulfilling their affordable housing mission” as legislatively enabled by Barney Frank and Congress.

And what has he managed to get for his effort?

For all his efforts, Frank readily acknowledges that there are more people needing decent housing than there were when he started in Congress. And with millions of others losing their homes to foreclosure, Frank asks to be judged by how much worse things would have been without him.

"In the political world, you get measured on the ultimate results," he said. "I think we’ve prevented things from getting as bad as they otherwise might have been."

Really? Have you looked around you Mr. Frank? This ranks right up there with the unmeasurable “saved jobs” nonsense pushed by the administration in the midst of 9.6% unemployment. And now Frank is going to get another chance to shape the housing market’s future?

Time to put him into retirement before he can again try to do what he did last time. Another reality of the “political world” is you should only get one chance and if you screw it up as badly as Frank did, you should join the ranks of the unemployed.

In this podcast, Bruce, Michael, and Dale discuss whether President Obama’s “Jimmy Carter Moment” is approacjing as a result of the BP Oil spill, and his proposal to eliminate the mortgage interest rate deduction.

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

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Not good news for a market that struggled even with the credit. The underlying weakness of the housing market again seems to be showing itself. And that’s not good news for the overall economy either. Diana Olick takes you through the numbers:

Everybody take a nice long look at today’s Pending Home Sales Index from the National Association of Realtors, because it’s just about the last positive picture we’re going to see for a while.

Those numbers she’s talking about show up in the May and June reports, but then she says, “look out”:

This index is based on contracts signed in August, and that’s how the credit was set up; you had to sign your contract by April 30th and close by June 30th in order to get your $8000 if you’re a first time buyer and $6500 if you’re a move up buyer.

And then came May, traditionally the height of the spring housing season.

Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997.

This is another indicator of a weak economy that still hasn’t yet sorted itself out yet. While the tax credits certainly helped sell some houses, it also hid that weakness that still exists. Look for the July report (Pending Home Sales Index) to again show we have a long way to go to full recovery.